FILED

United States Court of Appeals

Tenth Circuit

PUBLISH

September 12, 2008

UNITED STATES COURT OF APPEALS
TENTH CIRCUIT

Elisabeth A. Shumaker
Clerk of Court

JOHN F. MULLIN; DIANE L.

MULLIN,
Plaintiffs - Appellees,
v.

No. 07-4100

TRAVELERS INDEMNITY
COMPANY OF CONNECTICUT, a
Delaware Corporation,
Defendant - Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF UTAH
(D.C. NO. 2:05-CV-971-TS)

Michael W. Homer (Jesse C. Trentadue, with him on the briefs), of Suitter

Axland, Salt Lake City, Utah, for Defendant - Appellant.
Vincent C. Rampton, Jones, Waldo, Holbrook & McDonough, P.C., Salt Lake
City, Utah, for Plaintiffs - Appellees.

Before TACHA, BRISCOE, and HARTZ, Circuit Judges.

HARTZ, Circuit Judge.

Travelers Indemnity Company of Connecticut insured High Mountain, LLC,

which managed two condominium units in Utah owned by John F. and Diane L.

Mullin. The Mullins sued High Mountain for renting the units for discounted
rates without permission, theft of property from the condominiums owned by the
Mullins, failure to forward rental income, and theft of property from a rental unit
that the Mullins occupied. They obtained a default judgment against High
Mountain, which then declared bankruptcy. The bankruptcy led the Mullins to
bring this direct action against Travelers for a declaratory judgment that they are
entitled to recover from Travelers the full amount owed on their judgment against
High Mountain. See 28 U.S.C. 1332 (diversity jurisdiction); Utah Code Ann.
31A-22-201 (allowing direct action against insurers of bankrupt insureds).
After the parties filed cross-motions for summary judgment, the district court
ruled in favor of the Mullins.
On appeal Travelers argues that it is not obligated to pay the default
judgment because (1) the judgment against High Mountain is for losses not
covered by the Travelers insurance policy and (2) High Mountains failure to
provide prompt notification of the default judgment was prejudicial and bars
recovery under the policy. We have jurisdiction under 28 U.S.C. 1291 and
reverse and remand. Travelers is entitled to summary judgment with respect to
three of the alleged losses. The Mullins abandoned at oral argument their claim
that the Travelers policy covers the loss from discounted rents. The failure to
forward rental income is not a loss included within the policy coverage for loss of
use of tangible property. And the theft from the condominiums owned by the
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Mullins is not covered by the policy because it predated the policy coverage
period. We agree with the Mullins, however, that the Travelers policy covered
the theftallegedly caused by High Mountains negligencefrom the
condominium they occupied. But Travelers may still escape liability for that loss
if recovery under the policy is barred by High Mountains failure to give proper
notice to Travelers. Although the district court granted the Mullins summary
judgment on Travelers claim of inadequate notice, we think that disputed facts
precluded that judgment. We therefore remand for further proceedings on the
issue.
I.

BACKGROUND
The Mullins owned two rental condominiums in Park City, Utah, which

High Mountain began managing for them in 2000. From October 1, 2002, until
October 1, 2003, High Mountain had a general commercial liability policy with
Travelers. The Mullins sent letters to High Mountain in late 2002 and throughout
2003 complaining of (1) the loss of $15,728.28 in rental income because High
Mountain had discounted the rents for the Mullins units without their permission;
(2) High Mountains failure to forward $32,989.36 in rental income to the
Mullins; (3) the theft of property valued at $1,306 from their two rental
condominiums; and (4) the theft of property valued at $70,000 from a rental unit
where they were staying in December 2002 because their own units had been
rented.
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On October 28, 2003, the Mullins filed suit against High Mountain in Utah
federal district court, alleging that High Mountain was liable for the abovementioned losses of rental income and thefts. They claimed that High Mountain
had breached its contract by allowing the thefts to happen, discounting the rental
rate, and failing to forward rents; that its agents and employees had stolen at least
$71,300 of the Mullins property; that it was liable for gross negligence in
permitting the various thefts to occur; and that High Mountain had been unjustly
enriched by retaining the Mullins property.
After High Mountain failed to file a timely answer, default judgment was
entered in the Mullins favor on January 8, 2004, and they were awarded
$120,017.64 plus interest, attorney fees, and costs. High Mountain filed an
answer to the complaint four days later, on January 12, and filed for bankruptcy
in February.
Travelers had begun representing High Mountain by April 2004, but it did
not file a motion for relief from judgment until November 23, 2004. The district
court denied the motion. It noted that the Mullins would be prejudiced by
reopening the case because High Mountain had dismissed its employees and
ceased doing business, making it almost impossible to reconstruct what had
happened. In addition, the court found no excuse for High Mountains delay in
seeking relief. It indicated, however, that it would have set aside the default

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judgment if High Mountain had so moved when it filed its answer on January 12.
We affirmed the denial of relief on June 2, 2006.
In the meantime, on November 28, 2005, the Mullins had filed the suit
before us in the United States District Court for the District of Utah. 1 The
Mullins filed a motion for summary judgment in which they argued that Travelers
had to pay the entire amount of the default judgment. Travelers filed a motion for
summary judgment as well, in which it argued that none of the losses was covered
by High Mountains insurance policy and that, in any event, it was freed of
liability by High Mountains failure to provide it with timely notice regarding the
Mullins suit.
The district court granted summary judgment in favor of the Mullins and
denied Travelers motion. It ruled that all the Mullins losses were covered by
High Mountains policy with Travelers, and it held that Travelers was not
prejudiced by any failure of High Mountain to provide notice because Travelers
accepted tender of its insureds defense, effective January 15, 2004, in ample
time to file a successful motion for relief from the default judgment. Mullins v.
Travelers, No. 2:05-CV-971 TS, Mem. Decision & Order Granting Pls. Mot.
Summ. J. (D. Utah Mar. 26, 2007) (Opinion) at 8. The court entered judgment in

The Mullins initially sued St. Paul Travelers Insurance Company, but
Travelers was later substituted as the defendant.
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the amount of $134,312.37, which was the amount of the Mullins judgment
against High Mountain, plus costs, fees, and interest.
II.

DISCUSSION
For Travelers to be liable for the default judgment, it is necessary that (1)

the Mullins obtained, but w[ere] unable to satisfy, a judgment against High
Mountain; and (2) the damages arising from High Mountains actions were
covered by the [Travelers] policy. Speros v. Fricke, 98 P.3d 28, 34 (Utah 2004).
Travelers does not contest that the Mullins obtained a judgment against High
Mountain that they were unable to satisfy, so we need consider only the second
issue, whether High Mountains alleged wrongdoings were covered by the
Travelers policy.
A.

Standard of Review

We review de novo a district courts grant of summary judgment, viewing

the evidence in the light most favorable to the nonprevailing party. Navair, Inc.
v. IFR Americas, Inc., 519 F.3d 1131, 1137 (10th Cir. 2008). Summary judgment
is appropriate if there is no genuine dispute over any material fact, and a party is
entitled to prevail as a matter of law. Id.; see Fed. R. Civ. P. 56(c). Because the
parties arguments rely on Utah law, we will assume that Utah law governs. See
St. Anthony Hosp. v. U.S. Dept of Health & Human Servs., 309 F.3d 680, 703
(10th Cir. 2002) (assuming that Oklahoma law applies because parties assumed
that it did). When the Utah Supreme Court has not addressed specific issues
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raised in this appeal, . . . we must predict how that court would rule. Pompa v.
Am. Family Mut. Ins. Co., 520 F.3d 1139, 1142 (10th Cir. 2008). We consider
each alleged loss in turn.
B.

Unpaid and Discounted Rent

The Mullins argued below that the property-damage provision in the

Travelers policy covered High Mountains liability to the Mullins arising from
renting their units at a discount and failing to forward rental income received by
High Mountain on the Mullins units. At oral argument the Mullins explicitly
abandoned their claim with respect to the discounted rentals, so we need not
address it.
To assess the Mullins claim based on failure to forward rental income, we
begin with the pertinent policy language. The Travelers policy covers only those
sums that the insured becomes legally obligated to pay as damages because of
bodily injury or property damage to which this insurance applies. Aplee.
Supp. App. at 757 (Travelers Prop. Cas. Policy No. I-660-303C2211-TCT-02
(Policy) I.1.a). The policy defines property damage as:
a. Physical injury to tangible property, including all resulting loss of
use of that property. All such loss of use shall be deemed to occur at
the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All
such loss of use shall be deemed to occur at the time of the
occurrence that caused it.

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Policy V.15.ab. The Mullins do not claim that paragraph (a) provides
coverage. The issue, therefore, is whether the Mullins suffered a [l]oss of use of
tangible property that [was] not physically injured when High Mountain did not
forward the rental payments to them. The Mullins contend that the rental dollars
due [them] . . . constitute tangible property. Aplee. Br. at 16 (internal quotation
marks omitted). We think not.
The Mullins Rental Management Agreement with High Mountain states:
[High Mountain] will provide a monthly accounting to the [Mullins]
which reflects all adjusted gross rental revenue, adjustments thereto
and expenses earned and incurred by the individual UNIT. This
accounting will be provided no later than 30 days after the end of
each month. The net rental income shall be mailed to the [Mullins]
with the monthly accounting. [High Mountain] may use advance
deposit funds obtained in connection with any unit as working capital
for its operations and to pay all expenses incurred with regard to the
UNIT(S).
Aplt. App. Vol. 1 at 69 (Rental Agreement). Thus, High Mountain was not
supposed to send the Mullins any tangible items (cash, checks, or the like) that it
received. Rather, it would collect (and presumably deposit) rental income and
send the Mullins the net rental income (presumably a check) after High
Mountains fees and expenses were deducted. High Mountains misconduct was
not a refusal to deliver tangible property, but simply a failure to pay a debt.
There was no property damage within the meaning of the policy, because the
money not forwarded to the Mullins was not tangible property. See Johnson v.
Amica Mut. Ins. Co., 733 A.2d 977, 979 (Me. 1999) (bank-account funds are not
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tangible property, but merely represent value; therefore, conversion of bankaccount funds was not a loss of use of tangible property); Mack v. Nationwide
Mut. Fire Ins. Co., 517 S.E.2d 839, 840 (Ga. Ct. App. 1999) (money is tangible
property only when there is a matter relating to specific coins or notes);
Houston Petroleum Co. v. Highlands Ins. Co., 830 S.W.2d 153, 156 (Tex. App.
1991) (the loss of use of tangible property does not include the loss of initial
investments, subscription funds, and profits); Travelers Indem. Co. v. State, 680
P.2d 1255, 125657 (Ariz. Ct. App. 1984) (neither investment certificates nor
deposit of money in a bank is tangible property); cf. Capitol Indem. Corp. v.
Wright, 341 F. Supp. 2d 1152, 115354, 1159 (D. Nev. 2004) (when employee of
nursing home stole over $450,000 from nursing home resident, the money was
property that the victim lost the use of because it was hard currencywhich the
court inferred from the fact that the victim signed for the money at a bank). See
generally 2 Allan D. Windt, Insurance Claims & Disputes: Representation of
Insurance Companies & Insured 11:1 at 11-3 to 11-4 (5th ed. 2007); (property
that does not have intrinsic value, but rather is merely representative or evidence
of value, such as a stock certificate, is intangible property, not tangible
property); id. at 11-5 ([A]lthough the destruction of a stack of currency could
certainly be considered a destruction of tangible property, the destruction or loss
of a check or investment certificate is not . . . .).

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It seems obvious to us that failure to pay money owed as a debt is not the
deprivation of use of tangible property. And in light of the authority supporting
that proposition, we are comfortable that the Utah Supreme Court would adopt the
same view. See Pompa, 520 F.3d at 1142 (in diversity case we must predict how
states highest court would rule). Accordingly, High Mountains liability to the
Mullins for failure to forward rent payments was not covered by the Travelers
policy, and Travelers is entitled to summary judgment on this claim.
C.

Theft of Property Valued at $1,300

Travelers argues that the theft of $1,300 in property was not covered by its
policy because the record does not show that it occurred within the policy period
of October 1, 2002, to October 1, 2003. Travelers is correct that the Mullins bore
the burden to prove that the loss occurred within the policy period, see Speros, 98
P.3d at 34, and that they failed to satisfy that burden. The Mullins complaint
against High Mountain broadly states that the theft of the $1,300 in property
occurred [d]uring the calendar year 2002. Aplt. App. Vol. 1 at 59. But a letter
to High Mountain from Mr. Mullin on October 23, 2002, states that certain
property (later valued at $1,306) was discovered missing from their
condominiums [o]ver the Labor Day holiday. Aplt. App. Vol. 1 at 160. And a
letter to High Mountain by the Mullins counsel on September 23, 2003, states:
[The] Mullins have lost other items from their units incident to High Mountains
maintenance thereof prior to October of 2002. These items, itemized on the
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enclosed list, total $1,306. Aplt. App. Vol. 1 at 91 (emphasis added). No

evidence in the record supports a different date for the theft. Not only does the
record not support summary judgment in favor of the Mullins on this $1,300
claim, but it shows that Travelers was entitled to summary judgment.
D.

Theft of Property Valued at $70,000

The Mullins complaint against High Mountain alleged that in December

2002 property of theirs worth $70,000 was stolen by High Mountain employees
from a condominium where the Mullins were staying. Travelers argues that the
theft is not covered by the policy. It points out that (1) the policy excludes
coverage for damage to personal property in the care, custody or control of the
insured, Aplt. Br. 25 (internal quotation marks omitted); (2) it is liable under
the policy only for losses that are the result of an occurrence, that is, an
accident, id. at 23; and (3) the policy excludes coverage for property damage
intended from the standpoint of the insured, id. (internal quotation marks
omitted). In our view, however, none of these policy provisions assists Travelers
in this case.
First, we consider the policy exclusion for damage to [p]ersonal property
in the care, custody or control of the insured. Policy I.2.j.(4). The property at
issue here was personal property of the Mullins that they left in the condominium
they were occupying while their own condominiums were rented out. High

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Mountains care, custody, or control would have to derive from its management
of the condominiums.
The Travelers policy does not define care, custody, or control.
According to one leading treatise, however, to determine whether property is
under the care, custody, or control of an insured, courts consider
whether the property is realty or personalty, the location, size, and
other characteristics of the property, and the insureds relationship to
the property, including the insureds duties with respect to the
property, nature and extent of the insureds control over the property,
and any interest the insured may have in the property.
9 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 126:22 (3d ed. 2007)
(footnote omitted). The great majority of the cases, states the treatise, support
the view that property in the care, custody, or control of the insured refers to
possessory handling of the property as distinguished from proprietary control.
Id. Thus, property stored on the insureds premises usually qualifies, but not
when the insured lets locked storage space to a third party. Id.
We infer that a landlord who has no special responsibility toward the
belongings of a tenant does not have care, custody, or control of the tenants
property on the rented premises. This common-sense view of the policy language
undermines Travelers argument. High Mountain appears to have been merely the
landlords agent for living quarters occupied by the Mullins. Absent additional
evidence of High Mountains control of the premises or responsibility for an
occupants property, which Travelers has not provided, the only reasonable
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conclusion is that High Mountain did not have the possessory interest in the
Mullins property necessary to establish the exclusion. Although there is no
controlling Utah law in point, we see no reason to believe that the Utah Supreme
Court would adopt a peculiar view of the policy language. See Overson v. U.S.
Fid. & Guar. Co., 587 P.2d 149, 150 (Utah 1978) (the phrase care, custody, or
control is clear and unambiguous in most contexts).
Second, the Travelers policy applies to . . . property damage only if . . .
[it] is caused by an occurrence. Policy I.1.b. The policy defines occurrence
as an accident, including continuous or repeated exposure to substantially the
same general harmful conditions. Id. V.12. We reject Travelers contention
that this limitation bars recovery for the December 2002 theft. Although the
Mullins complaint against High Mountain alleges intentional theft (for which
High Mountain was allegedly liable under the doctrine of respondeat superior), it
also alleges that High Mountain was grossly negligent for (a) failing to secure
the Rental Unit and the Condominium Units through re-keying following a prior
burglary thereof; (b) making keys to the Units available to third parties; and/or (c)
failing to supervise personnel entering or leaving the Units. Aplt. App. Vol. 1 at
6263.
Ordinarily, the intentional acts of a third party do not prevent a loss from
being an accident if the insureds negligence was also a cause. For example, in
Nationwide Mutual Fire Insurance Co. v. Pipher, 140 F.3d 222, 22526 (3d. Cir.
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1998), Ms. Piphers tenant was murdered by a man whom Ms. Pipher had hired to
paint the apartment, id. at 22324. Ms. Piphers insurance company sought a
declaratory judgment that it had no duty to defend her because the killing was
intentional, and thus did not result from an accident. Id. at 224. But the Third
Circuit held that there was policy coverage because the complaint alleged that
Ms. Pipher had been negligent in failing to reinstall apartment doors, failing to
provide safe premises, and hiring the painter. Id. at 225. The court said, The
rule seems to be well-settled . . . that it is the intentional conduct of the insured
which precludes coverage, not the acts of third parties. Id. at 226. It also noted
that many courts have expressly held in favor of the insured in coverage disputes
involving the intentional conduct of third parties. Id.; see also id. at 22829
(Alito, J., concurring). We are confident that Utah would concur with this
prevailing view.
Third, the Travelers policy has a provision entitled Expected or Intended
Injury, which excludes coverage for Bodily injury or property damage
expected or intended from the standpoint of the insured. . . . Policy I.2.a. But,
as just discussed, the Mullins had a claim against High Mountain for
unintentional conduct (gross negligence) that caused the theft. It appears that
Travelers does not rely on this exclusion with respect to the negligence claim. In
any event, we do not see, and Travelers does not explain, how the exclusion
would apply to that claim. See Pipher, 140 F.3d at 227 (explaining meaning of
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such an exclusion). To escape liability with respect to that claim, Travelers must
therefore rely on its failure-of-notice argument.
E.

Failure to Notify Travelers of Mullins Lawsuit

Travelers final argument is that it was relieved of any liability under the
policy because it was prejudiced by High Mountains failure to provide prompt
notice regarding the Mullins lawsuit against High Mountainin particular,
notice of the default judgment. Because this argument is fact dependent, we
begin by reciting what the record reveals.
The Mullins filed suit against High Mountain on October 28, 2003. Default
judgment was entered in their favor on January 8, 2004. High Mountain filed its
answer to the complaint four days later and declared bankruptcy the following
month. Travelers admits that it had begun representing High Mountain by April
2004, but it did not file a motion to set aside the default judgment until November
23, 2004. The motion was denied, and we affirmed on appeal.
Travelers agent received notice of the Mullins claim against High
Mountain on January 6, 2004, and Travelers acknowledged receipt of the
summons and complaint in a letter to High Mountain on January 15, 2004.
(Although the Mullins contend that Travelers had earlier notice of the claim, they
rely on an affidavit from their attorney that provides only hearsay evidencea
statement by High Mountains attorneythat Travelers knew of the claim. Such
hearsay cannot be considered on a motion for summary judgment. See Riggs v.
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AirTran Airways, Inc., 497 F.3d 1108, 1121 (10th Cir. 2007).) The Mullins
asserted below, and the district court agreed, that Travelers announced its
decision to defend High Mountain in the January 15 letter. The language of the
letter does not support this proposition. Travelers wrote:
The Travelers Indemnity Company of Connecticut (Travelers) has
received the Summons and Complaint John F. Mullin and Diane L.
Mullin have filed against High Mountain, LLC dba High Mountain
Properties (Mountain Properties) in the United States District
Court, District of Utah, Central Division (Civil No. 2:03 CV00952
DS).
Travelers is conducting an investigation to determine what our rights,
duties and obligations are to Mountain Propert[ies] under the policy
of insurance, number 660-303C2211-TCT from October 1, 2002 to
October 1, 2003.
This investigation is being done under a reservation of rights which
should not be construed as an admission of coverage or liability. We
do not waive any of our rights under the policy of insurance issued to
Mountain Properties.
We understand you retained counsel who has filed a response on
Mountain Properties behalf.
We will advise you of our coverage position once we have had an
opportunity to complete our investigation. Should you have any
questions, please contact me at . . . .
Aplt. App. Vol. 1 at 261. This letter appears to communicate a reservation of
rights, not a tender of defense. Indeed, it notes that High Mountain already has
retained counsel to answer the complaint.
The Travelers policy requires that High Mountain [i]mmediately send
[Travelers] copies of any demands, notices, summonses or legal papers received
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in connection with the claim or suit. Policy IV.2.c.(1). Travelers contends

that High Mountain failed in this regard by not providing notice of the suit until
the default was entered and never providing notice of the default or the default
judgment. It asserts that it did not learn of the default or default judgment until
advised by the Mullins attorney in April 2004, three months after judgment was
entered. Under Utah law, however, failure to provide notice to an insurer does
not bar recovery under the policy if the insurer fails to show it was prejudiced by
the failure. Utah Code Ann. 31A-21-312(2).
In our view, whether Travelers was prejudiced by lack of notice from High
Mountain could depend on a variety of factors. To avoid doing the parties work
for them, we choose not to canvass the possibilities. But the district court
apparently found one fact to be dispositive. It said that Travelers accepted
tender of its insureds defense, effective January 15, 2004. Opinion at 8. And it
then concluded that Travelers had actual notice in time to have affected the
outcome of the case, id., apparently relying on the statement by the district judge
in that case that he would have granted a motion for relief from the default
judgment if the motion had been filed with High Mountains answer on
January 12, 2004. We cannot affirm summary judgment for the Mullins on this
basis. The district courts statement that Travelers accepted the tender of its
insureds defense on January 15, 2004, is, at the least, highly questionable.
Accordingly, we remand to the district court for further proceedings regarding
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whether Travelers was substantially prejudiced by failure of timely notice from

High Mountain.
III.

CONCLUSION

We REVERSE the district courts grant of summary judgment. We

REMAND to the district court with instructions to enter summary judgment in
favor of Travelers on all claims except the claim based on the December 2002
theft of the Mullins property. With respect to that claim, we REMAND for
further proceedings regarding whether Travelers was prejudiced by untimely
notice from High Mountain concerning the Mullins lawsuit against High
Mountain.

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